Regional Casino Shares Viewed as Valuable by Raymond James.
2024 has been a tough time for stocks related to casinos in certain regions, but some financial experts believe there's potential for high returns in this field.
In an analysis shared with customers, Raymond James analyst RJ Milligan rated Boyd Gaming and Penn Entertainment as "outperform", pointing to favorable pricing. Boyd is doing better than the others in this category, with its stock losing 11.74% so far this year.
During Boyd's first-quarter earnings conference call, they mentioned that bad weather affected their gaming venues in the Midwest and the South, as well as increased competition in the Las Vegas Locals market. The opening of Red Rock Resorts' Durango Casino & Resort in Southwest Las Vegas last December has caused some issues for casinos like Boyd and Red Rock, with many competing venues increasing their promotional activities.
Milligan believes that this quarter will be another tough one for Boyd, but that long-term, it has the potential to be a profitable investment. The current earnings before interest, taxes, depreciation, amortization and restructuring or rent costs (EBITDAR) are already priced into the stock, and he believes there's value in buying Boyd now.
Raymond James Remains Optimistic about Caesars
Though Caesars Entertainment is one of the big players on the Las Vegas Strip, they also have a large number of regional casinos. They even added more to their portfolio not long ago with the launch of a casino in Nebraska. This means that they could face issues in both Las Vegas and the Regional market.
"Both Las Vegas and the Regionals are experiencing headwinds, but the stocks are pricing in worse fundamentals than reality," said Milligan.
Regarding Caesars specifically, he thinks the operator can handle two major constraints: high debt levels and losses in their digital gaming unit. There's growing agreement that Caesars can reduce its debt through better free cash flow and potentially by selling off underperforming properties in some regional markets.
Milligan rates Caesars a "strong buy" and has a $55 price target on the company. This implies a potential increase of 54.3%.
Could Penn Entertainment Be a Turnaround Story?
This year, Penn Entertainment has had a horrible run, with their stock dropping 36.74%. Many of these issues resulted from analysts who believed that Penn's ESPN Bet unit would lose more money than expected.
Milligan says that Penn's current share price is similar to what it was in May 2020, when all casinos were closed due to the pandemic. He believes that the value of their land-based regional casino is worth $21 a share, and their digital unit could be valued from $0 to $7. If the interactive division is considered worthless, buying the company at this price would still be better than its current share price of $16.41.
"Given the current share price, we think the market is assigning negative equity value to the interactive business and a significant management penalty box discount," Milligan concluded.
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Source: www.casino.org
